KPI's For construction Industry: Part 1

Introduction to Key Performance Indicators

What is KPI?

A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIs to evaluate their success at reaching targets.

Selecting the right KPIs will depend on your industry and which part of the business you are looking to track. Each department will use different KPI types to measure success based on specific business goals and targets.

Once you’ve selected your key business metrics, you will want to track these KPIs in a real-time reporting tool. KPI tracking can be done using dashboard software, giving your entire organization insights into your current performance.

Anatomy of a KPI

KEY: A major contributor to the success or failure of the project; a KPI is therefore ONLY a key when it can either make or break the project.

PERFORMANCE: In essence, a metric that can be measured, quantified, adjusted, and controlled; note that the metric MUST be controllable to improve performance.

INDICATOR: An easy to read and interpret representation of present and future performance.

What is Benchmarking?

Benchmarking is the process of comparing a company’s performance against a benchmark to assess current performance and generate a plan to drive improvement in order to drive performance towards the benchmark level.

Why is KPI effective?

A KPI is only as valuable as the action it inspires. Too often, organizations blindly adopt industry-recognized KPIs and then wonder why that KPI doesn’t reflect their own business and fails to affect any positive change. One of the most important, but often overlooked, aspects of KPIs is that they are a form of communication. As such, they abide by the same rules and best-practices as any other form of communication. Succinct, clear and relevant information is much more likely to be absorbed and acted upon.

In terms of developing a strategy for formulating KPIs, your team should start with the basics and understand what your organizational objectives are, how you plan on achieving them, and who can act on this information. This should be an iterative process that involves feedback from analysts, department heads and managers. As this fact finding mission unfolds, you will gain a better understanding of which business processes need to be measured with KPIs and with whom that information should be shared.

The Need for KPIs:

It can be said that the KPI’s used by companies to:

Evaluate: Performance measurement of program outputs and outcomes provides important, if not vital, information on current program status and how much progress is being made toward important program goals. Thus, performance measurement of an organization is a way to make an assessment and comparison with other companies.
Control: Processes can only be controlled from the moment the company is able to define their performance standards. Performance measurement is used in the recognition of problems, which identification occurs when a particular indicator shows a deviation from an established pattern.
View: Measurements are used to establish the initial diagnosis before implementing interventions for improving companies processes. They aim to identify strengths and weaknesses or dysfunctions, from which priorities are given to the implementation of improvement actions
Learn: Performance measures contain information that can be used not only to evaluate, but also to learn. Indeed, learning is more than evaluation. The objective of evaluation is to determine what is working and what isn’t. Improve – When companies decide to act in the process they should set targets through indicators, for example, using benchmarks as a reference.

What are KPI Types?
Quantitative Indicators: A measure that can be presented numerically
Qualitative Indicators: Cannot be measured numerically
Leading Indicators: Forward looking measures that help predict future outcomes
Lagging Indicators: Provide a post hoc mechanism
Input Indicators: Measure the usage of resources used during project execution
Process Indicators: Used to measure overall efficiency
Output Indicators: Used to demonstrate the outcome or results of the process activities
Practical Indicators: Interfaces to existing company processes
Directional Indicators: Demonstrating whether organization or project is improving or not
Actionable Indicators: Those which are in control of the organization
Financial Indicators: Monetary measures
Establishing your KPI library:
A key aspect of picking the right KPIs is to ensure you are choosing the specific ones that are actually most pertinent to establishing project success
Creating a KPIs ‘library’ is quite straightforward; however, ensuring you only select the relevant KPIs is a little more challenging
Too many KPIs will lead to confusion and could start sending false positives to the project stakeholders, sponsor and team members; additionally, overloading the usage of KPIs will eventually lead to the situation of ‘noise’, whereby so many factors are monitored that it becomes a blur.

How to select your KPI’s?
Specific: The KPI is clear and focused toward performance targets
Measurable: The KPI can be expressed quantitatively
Attainable: The KPI targets are reasonable and achievable
Realistic: The KPI is directly pertinent to the work being done
Time-based: The KPI can be measured in a given time period

How to use KPI as a Project Manager?
Define operational objectives for Construction technician monthly, quarterly, 6 months, yearly.
Identify Key Result Areas (KRA) for the Construction technician.
Identify tasks list.
Determine work procedure for each KRA, each task.
Identify methods to measure the results of each KRA, task, and procedure.
Create Construction technician KPI’s.
Examples for KPI’s used in Construction Industry:
Actual working days versus available working days
Cash balance: Actual versus baseline
Change orders: Clients or Project manager
Cost for construction
Cost predictability:
Design, Construction, Change Orders , Design and construction cost to rectify defects
Customer satisfaction level
Day to day project completion ratio: Actual versus baseline
Labor cost: Actual versus baseline
Number of defects
Percentage of equipment downtime
Percentage of labor downtime
Productivity
Profit margin: Actual versus baseline profit margin over project timeline
Profit predictability (project(
Profitability (company(
Quality issues at available for use
Quality issues at end of defect rectification period
Return on capital employed (company)
Return on investment (client(
Return on value added (company(
Time predictability: Design, Construction or Both
Time taken to reach final account (project(

References:
- https://www.klipfolio.com
- CCG June 08 presentation CAENZ.pdf
- Projectmanagementkpis-140103141429-phpapp02.ppt
- http://www.performancemagazine.org/building-performance-kpis-used-in-construction
- Source: Wikipedia: http://en.wikipedia.org/wiki/Key_performance_indicators)